Banning the sale of PPI at the same time as a loan has been described as "unreal" and "absurd" by law firm CMS Cameron McKenna.
Simon Morris, a partner at the firm which specialises in financial services, says the move would be “like saying that a car should be sold without tyres so that the motorist can then shop around for a better deal”.
The suggestion formed part of a damning report by the Competition Commission (CC) on the problems facing the PPI market, which also suggested a price cap as a temporary measure to reduce the price of PPI products.
Morris says: “This is unreal. The Competition Commission’s suggestion that firms be banned from selling PPI to customers to protect their loans or other credit products demonstrates no grasp of how business works or of how people behave.
“People who buy a loan product are highly unlikely to want to shop around for insurance against future inability to pay. They will be the losers if the unexpected occurs.
“The Commission’s objection that PPI is sold as an ‘add-on’, [suggesting] there is something shifty about this, is as absurd as saying that a car should be sold without tyres so that the motorist can then shop around for a better deal.”
The CC report said most of the UK’s 14 million PPI policies are sold at the same time a consumer takes out a loan, and argues consumers are unaware they can buy the products from other providers.
It says this makes it difficult for other providers to reach these customers, adding that, in the absence of such competitive pressure, distributors such as banks, mortgage providers and credit card providers are able to charge higher prices.
Competition Commission deputy chairman, Peter Davis, said: “We've found serious problems with the PPI market and customers are paying for the lack of competition.
“The way PPI is sold as an ‘add-on' to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.
“Distributors don't appear to compete much with each other on either price or quality of PPI; neither do they appear to do much direct advertising of PPI to win customers from each other.”
The CC would like to hear views on the provisional findings report and notice of remedies from all interested parties, in writing, by 30 June 2008. To submit evidence, please write to:
The Inquiry Secretary (PPI market inquiry)
Or email: [email protected]
020 7034 2636
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